A R Walmsley Solicitors Sydney

DOCUMENTS & GUIDES...

PURCHASERS AND THE NEED TO LODGE A CAVEAT TO PROTECT THEIR PURCHASE

Iannello v Sharpe was heard by the NSW Wales Court of Appeal and judgment delivered on 23 March 2007. A house at Hunter's Hill was sold for $4.5 million and a 5% deposit of $225,000 was paid. The contract included a special condition covering this, but also providing that, if the purchaser defaulted under the contract, the payment of the balance deposit of $225,000 would become an essential clause and the purchaser would forfeit the 10% deposit of $450,000 to the vendor.

The purchaser could not raise finance and a Notice to Complete was served. The contract was terminated and the vendor sued for the balance $225,000. It was held that only the deposit paid on exchange was to be forfeited to the vendor and that the balance was a penalty and, as such, could not be recovered.

The clear moral to the case is that deposits of less than 10% either by way of payment, or by bond, should not be accepted unless the vendor is given very clear adviceĀ  that only the deposit paid will be available should the purchaser default. We realise that a lower deposit is sometimes attractive to enable a sale to take place, but I would not suggest it to any vendor for fear of being personally liable for the loss, that is that the vendor could recover the "lost deposit" from the agent involved.

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